Ambiguity is Detrimental for Long-Run Cooperation

Autor

Resumen

Why agents cooperate is an old question that has been widely studied in economics, as well as
in other disciplines. In economics, the focus has been mainly put in analyzing whether cooperative
behaviors may arise from repeated interactions between strategic individuals. This paper
seeks to contribute to the literature by studying the effects of ambiguity, shortly defined as uncertainty
about the realization of future states and the probabilities assigned to their realization, on
long-run cooperation. Concretely speaking, the infinitely repeated Prisoner’s Dilemma, and the
consequent determination of conditions for sustaining long-run cooperative behaviors, is revisited in
an ambiguity setting. Results suggest that ambiguity is detrimental to cooperation as it decreases
(increases) the expected payoff of the cooperative (non-cooperative) equilibrium and, therefore, (1)
it may change the game’s structure from the Prisoner’s Dilemma setting to scenarios in which the
expected payoff associated with the cooperative equilibrium is no longer Pareto-superior, and (2)
it demands more patient players for sustaining cooperative agreements when the game’s structure
remains unchanged. An application is made to the Cournot duopoly and the likelihood of sustaining
a tacit collusion. In addition to previous results, it is found that the Cournot duopoly may
not longer behave as a particular case of the Prisoner’s Dilemma for high levels of ambiguity. A
positive relation between ambiguity and competition is stated. Therefore, our results may serve as
an additional theoretical input for antitrust policy design.